Learn Forex: Pivot Points

Pivot points are technical indicators that can prove helpful to investors, giving them one more tool for assessing the market. Trend, range and breakout traders can all harness pivot points points, using them to determine when to enter and exit positions.

By calculating these points, investors can gather several helpful pieces of information. Technical analysts can use pivot points to not only determine levels of support and resistance, but also to gauge whether a market is bearish or bullish. In addition, these points can be especially helpful for determining stop-loss prices and profit targets.

At their most basic level, pivot points are areas where a security's price trend might change. These technical indicators can help one obtain a better sense of how these financial instruments will behave in the short term, and investors frequently use pivot points for this specific purpose.

Calculating Pivot Points

To calculate pivot points, technical analysts harness the high, low and closing value of a security, and in some cases levels of support and resistance. These values can be from the last day, week or even month. The forex markets are open 24 hours a day, so calculations that involve a particular session will assume the session ends at 5 p.m. EST.

There are several methods for determining a pivot point, with the most basic one involving averaging the high, low and closing prices for the prior day. Another technique, called the five-point system, adds two support levels and two resistance levels to the aforementioned price levels.

Once a trader has identified the pivot point, he can then use this piece of information to calculate support and resistance levels. To determine the first levels of support and resistance, the trader can start with the pivot point and then measure the width between this point and either the high or low prices from the previous day.

To calculate the second level of support and resistance, the investor can utilise the full width between the prior session's high and low prices.

Using Pivot Points

Once traders have identified pivot points, as well as their corresponding levels of support and resistance, they can harness this information. There are many uses of these data points, with some being more straightforward than others.

One basic application is that if a currency is trading above a pivot point derived from the previous day's values, this situation helps show the bullish feelings of the global markets. In such a case, a forex trader looking to make use of trends might want to take a long position in the belief that he can capitalise on the sentiment of the market.

However, if a currency is trading below the prior session's pivot point, an investor can take this as evidence of bearish sentiment. In cases like these, a trader may want to take a short position on the currency.

Range Trading

Range traders can potentially use pivot points, as well as their corresponding levels of support and resistance, to find better times to enter and exit trades. For these investors, pivot points can serve as reversal points. In addition, support levels can provide a good place to enter a buy order. Once a currency nears one of these levels, a range trader might find it a good time to take a long position.

In contrast, resistance levels can help give investors a good place to sell. When a currency approaches such a level, this might indicate an opportunity to close out a position and take profits.

Breakout Trading

Investors interested in breakout trading can also make use of pivot points. More specifically, these traders, who study charts in an attempt to identify instances where a security will experience a significant price fluctuation in a short time frame, can use pivot points to gauge when breakouts are genuine.

If used effectively, pivot points can potentially be a valuable tool for traders. If investors take the time to learn about these points, they may find they have one more tool for evaluating the market and determining when to enter and exit positions.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

Related Insights by Tag

Trade Oil Directly from Charts

Free Practice Account

Get Free $5,000 trading account

First Name *

Last Name *

Email *

Country *

Mobile Phone

I consent to receive educational trading material and information about FXCM's products and services.

Email

SMS

You can opt-out at any time. Network charges may apply. FXCM will use data collected for the purposes of providing service, contacting, and sending you important information. To find out more, please visit our Privacy Policy.

More Ways to Use Trading Station

Apple iOS™

Android™

Windows PC

Thank You

Demo registration is currently down for scheduled maintenance.

Your login credentials will be emailed to you upon completion of scheduled weekend maintenance.

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Demo Account: Although demo accounts attempt to replicate real markets, they operate in a simulated market environment. As such, there are key differences that distinguish them from real accounts; including but not limited to, the lack of dependence on real-time market liquidity, a delay in pricing, and the availability of some products which may not be tradable on live accounts. The operational capabilities when executing orders in a demo environment may result in atypically, expedited transactions; lack of rejected orders; and/or the absence of slippage. There may be instances where margin requirements differ from those of live accounts as updates to demo accounts may not always coincide with those of real accounts.

Risk Warning: Our service includes products that are traded on margin and carry a risk of losses in excess of your deposited funds. The products may not be suitable for all investors. Please ensure that you fully understand the risks involved.

Custom Service

FXCM Policies

Follow Us

High Risk Investment Notice: Trading forex/CFD's on margin carries a high level of risk and may not be suitable for all investors as you could sustain losses in excess of deposits. Leverage can work against you. Be aware and fully understand all risks associated with the market and trading. Prior to trading any products offered by Forex Capital Markets Limited, inclusive of all EU branches, FXCM Australia Pty. Limited, FXCM South Africa (PTY) Ltd, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the “FXCM Group”], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM Australia Pty. Limited (“FXCM AU”) (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. Our FX and CFD prices are set by us, are not made on an Exchange and are not governed under the Financial Advisory and Intermediary Services Act. The FXCM Group may provide general commentary which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action.

FXCM South Africa (PTY) LTD is an operating subsidiary within the FXCM group of companies (collectively, the “FXCM Group”). FXCM South Africa (PTY) LTD is an authorized Financial Services Provider and is regulated by the Financial Sector Conduct Authority under FSP No 46534. All references on this site to "FXCM" refer to the FXCM Group.

The FXCM Group is headquartered at 20 Gresham Street, 4th Floor, London EC2V 7JE, United Kingdom.